Telecom Revolution

India’s XI Plan had projected a telecom services growth, but in reality, but the growth rate exceeded planned projections. In the matter of telephony, India attained the near impossible of more than 75% in density. India’s rural areas were widely covered, giving access of telephony to a large number of people in the rural areas. Though the growth was sensational, there were some policy lapses pertaining to the award of licenses and the matter is seized by the Courts of Law, hence sub judice. There are charges and counter charges. 2 G Spectrum is sparse and naturally, its use should have been made under harsher conditions and upper value. Many experts believe that the licenses were given at rock bottom prices. Though different agencies like Comptroller and Audit General, Central Bureau of Investigation, TRAI, Government of India had given varied figures regarding the revenue that would been acquired if 2 G Spectrum was auctioned, and the revenue that actually came in because of grant of licenses on First-cum-First-served basis. The comparison made by the various authorities must have been made on a base, and that base has to stand the test of law of probability under the eyes of Law. There were certain agencies who calculated the increased revenue by comparing the value received in 3 G auction, some calculations were made on the disposal of shares by companies who had fetched the license (based on the market value of shares), one company had quoted a pan-India value for receiving the license in Court and that value was taken etc. There have been economists and experts who had argued that the ‘base had to be on demand of tele services and the cost to the company to service a customer including cost of investment to be incurred in the new services that would have resulted in ‘x’percentage of growth’. The mean value of that would have accurately and fairly determined the demand for the Services on the basis of which the revenue should have been based. The growth of the Telecom industry in India during the 3rd millennium was reckoned as 40%. Expansion of a service and its acceptability of the same depend on its cost effectiveness. The example of dramatic market expansion in the Telecom industry proves the above concept. When mobile telephony started, the total number of subscribers in India was around 40,000. Telephone instrument costed Rs 40,000/-. The in-coming and out-going charges were Rs 18/- and Rs 32/-. All the Service providers were making huge losses. Today, on an average 5-6 million customers are added and the cost of the calls is very low. Instruments are available from Rs 500/- onwards. India has the World’s second largest mobile phone users at 865 million (August 2011). Teledensity is 73.97%. By 2014-15, it is expected to grow to 1 billion (84%). Wold’s 4th largest internet customer is India with 100 million users (Dec 2010). Internet hosts are 45, 36,000. 40 million use internet through their mobile phones. 10 million are employed in the industry of which 2.8 million are on direct employment and 7 million on indirect employment. In 2005-06, the Revenue through mobile phones at factor cost at constant prices was Rs 32,000 billion, but in 2010-11 it went up to Rs 57,600 billion and in 2015-16, it is expected to yield Rs 103,680 billion. Telecom equipment segment sold equipments worth Rs 1,17,039 Cr (US $ 23.74 billion).ARPU(Average Revenue per Mobile User per month) and the total income has been calculated on the basis of Gompertz model of mobile phone diffusion in India. Government receives Regulatory charge, Service charge from each mobile user. Government Regulatory charges are 13%(This is far more than Pakistan 4.5%, Sri Lanka 0.3%, Malaysia 6.5%, South Africa 5%) Service tax (which no other country charges) in India is 12.24%. The revenue to the Government for 2005-6 at factor cost at current prices would be Rs 53 billion (Regulatory charges) + Rs 41 billion (Service tax) fetching a value of Rs 94 billion. In 2010-11, it was Rs 156 billion +Rs 187 billion = Rs 343 billion, while in 2015-16 it is quantified using the Sigmoid Curve(S-shaped Growth curve) at Rs 324 billion and Rs 388 billion = Rs 712 billion. [The Diffusion of Mobile Phones in India by Dr Sanjay Singh, IIT, Kanpur]. 4G Mobile servicing with LTG Tech will be introduced in 2012. All this will take the nation to a telecom revolution. This is the reality. The annual recurring income revenue to the Government has to be noted.

Relationship between Inflation,Growth,Capital

India is a growing economy, set to join a League of Nations (BRIC) to emerge as one of the emerging economies by the middle of the third millennium. It had an impressive growth rate, upward of 9%, its Foreign Exchange reserves enlarged more than 7 times of the figure in 2003-4, its trade grew to beyond three century mark, its poor slowly were growing and had better living conditions, the purchasing power of the middle class grew, and consumption began to drive the economy. Inflation was at its lowest, in contrast to the high growth returns. India was on the red carpet growth to prosperity. India slowly emerged as a economic powerhouse with investments from abroad soaring in making it the favourable foreign investment destination. Ever since March, 2008 there has been a constant increase in the rate of inflation. In Nov 2008, it touched 10.45%, in Dec 2009 it was 14.97%, in January 2010 it went up to 16.22% and in September 2011 it posted 9.72%. The Government, made a monetary Policy amendment by increasing the low Bank interest rates, which has seen revision more than 13 times since the last 18 months. Relentlessly, the Banks went on expanding the interest rates with the hope that they would be able to slide down the inflationary impact on the economy. More they tried, more difficult it became. India’s war against inflation resulted in sacrificing its growth which came down to 7.5% and may slip to 7.2%. The Government gave the Magna Carta to the Oil companies to decide the petrol prices. The Petrol prices have been increased repeatedly, so that it increased the percentage of inflation. It has become very difficult to tame inflation as it has gone beyond a point. Our markets have seen a lull. Foreign investors do not beseech India like before. There has been a fall in percentile of investment. American economy is creating a Permbra situation in the Indian economy. When markets are lull, it passes on the feel to the Economy. Interest hike has seen the Non performing asset of Banks increase by 20% in the period, June-Sept 2011 (Rs 16,132 Cr). All the Public sector restructured their loans and 17% of all the advances show that it had turned bad. Many Small Medium Enterprise are turning red or closing shop as they are not able to get proper and timely Credit. A propped up credit at 14% makes availing loans unviable for units. Big Corporate companies can opt for External borrowings, but with the Indian Rupee turning meek against the dull Dollar has made foreign loans costlier than before (Rs 49.70= 1 $)(from Rs 40 = 1 $). They are indeed, waiting for some threshold. The aviation industry is in the dole drums because of this. The Exporters are also facing brunt on this front. Their dollar worth of goods account for more rupees while the expenses in the domestic market has gone sky high. The cost of credit through Foreign Exchange for Packaging Credit is not sustainable. Conflict over Policy objective higher level of well-being, that is means of achieving it- by higher growth or by lower inflation, trade-off is necessitated; both cannot be achieved simultaneously. Government intervention in financial and goods markets, due to macroeconomic rigidities has caused market failure and microeconomic instability. Inflation is harmful rather than helpful to growth. Policy implications will see inflation- growth nexus. Negative co-relation between inflation and growth in the long run would result in the influence of the former on reducing investment, productivity and growth. We are in the thick of core inflation, inflation on the basis of CPI, food inflation, low asset creation, declining value of parity (Rupee- Dollar parity), monetary inflation, and price inflation. There was a semblance of over heat in the economic growth and its irrational exuberance has seen the trajectory of growth going hay-wire. More than the fiat currency (paper currency), over supply of bank notes has resulted in depreciation of their value (Classical Economists David Hume & Ricardo). This may perhaps be one reason that the Draft which had a life of 6 months was traded in the market between persons. (This was treated like commodity money). Money is what money does. Money is transferable. It is constantly exchangeable. So long as money is in circulation, money gives equal value of other goods and services. Somebody may invest money to make some product. He employs workers and other managerial persons who look after his unit. They buy the raw materials out of the funds from their working capital and manufacture end product for sale to some wholesaler or retailer, on receipt of which he pays the money towards the cost of the goods which are demanded on the basis of Invoice. He pays the money and takes the consignment and sells the same and makes money. Again, he places the order. These steps are repeated. The money received is put in the Bank account. Salaries are paid to workmen, other staff on duty. Bills of Raw material supplier, embellishment supplier, packaging supplier, transporter, telephone bill, electricity bill, other temporary staff bill, other bills towards purchase of merchandise, etc are all paid, and they in turn pay for goods and services. There is circulation of money. Bank charges interest rates. The owner takes the Profit. Money capital is recycled again and again, and another session he will restart the cycle of reproduction with the aim of accumulating more capital and its disbursal. Suppose, the businessman feels that he does not want to continue his industry, so he sells his company to somebody and puts the entire corpus in the Bank. Instead of putting his money-capital back into commodities, he invests it in the bank. He now holds in his hands a claim to capital, perhaps in the form of a bank-account, or a bond, shares or whatever, rather than capital as such. Now his money lies idle in the bank vault. But his claim to the money is secure. However neither his claim nor the money itself are capital as such and can earn no interest, because the money is not in circulation. By its being in the self, it is not expected to produce more money. The Bank, need to loan this money to somebody. May be one person. Or many persons. The persons who have availed the loan should use it productively to earn a return by which he can circulate the money, pay interest, instalments due to the Bank out of his profit. The Bank should pay interest to the depositor as well. It should also make profit to be in business of banking. However, as the class of speculators, bankers, brokers, financiers, and so on, grows, as is inevitably the case wherever the mass of capital in a country reaches a sufficient scale, what happens is, for example, the bank finds that it is able to loan out far more than it has deposited in its vaults; speculators can sell products that they do not possess, “the right kind of person” is good for credit even when they have nothing, .etc., etc. Thus one and the same unit of productive capital may have to support not just the one retired industrialist who deposited his savings with the bank, but multiple claims on one and the same capital. If the bank accepts one million as Savings, but loans out ten millions, each of those ten millions has equal claim to that same value. This is how fictitious capital comes about. Fictitious Capital is value, in the form of credit, shares, debt, speculation and various forms of paper money, above and beyond what can be realized in the form of commodities. The ability of the bank to make unsecured loans is dependent on “confidence”, and at times of expansion and boom, the mass of fictitious capital grows rapidly. Then, when the period of contraction arrives, and the workers can no longer feed the voracious appetites of all these capitals, the bank finds itself under pressure and calls in its loans, defaults occur, bankruptcies, closures, share prices fall, and things fall back to reality – fictitious value is wiped out. In times of recession, even good, useful commodities cannot be sold because money and credit has become scarce, and the commodities prove to be valueless. Fictitious capital is that proportion of capital which cannot be simultaneously converted into existing use-values. It is an invention which is absolutely necessary for the growth of real capital, it constitutes the symbol of confidence in the future. It is a necessary but costly fiction, and sooner or later it crashes to earth. Roughly every ten years, the mass of fictitious capital grows while trade is good, and then, as the capacity of the workers to sustain the mass of hangers on reaches its limits, the downturn gathers momentum and fictitious capital is wiped out, and the cycle begins again. The scale of these crises grew continuously until the Wall Street Crash of 1929, and the Great Depression of the 1930s. The Depression and the War which followed wiped out all the accumulated mass of capital so that a new cycle of reconstruction could begin again in 1945. The New Deal in the US, Keynesian economic policies and particularly the international monetary arrangements set up at the Bretton Woods Conference of July 1944, created conditions for an exceptionally long period of growth after the War. The particular mechanism for the creation of an unprecedented mass of fictitious value in this period was the role assigned to the US dollar as the medium of international exchange in lieu of gold. Under the Mashall Plan, Europe was rebuilt and the US capitalist class further enriched by the labour of all those workers who did the rebuilding. But capital could not organise that reconstruction other than by creating a new mass of fictitious capital, in the form of inconvertible dollars. Today, we are seeing the declining value of the Dollar. There is currency depreciation. By the mid-1960s this mass of fictitious capital began to collapse and world entered a prolonged period of crisis. The mass of fictitious capital circulating in the money markets, futures exchanges and so on today is, however, far greater than ever before. 98% of the value of monetary transactions in the world is speculative, only 2% involve actual use-values. Capital continues to exist by means of the delicate balancing act performed by all the governments and banks of the major capitalist countries, staving off the collapse of this gigantic and parasitic fantasy. The collapse of Banks due to ‘mortgage crisis’ can be attributed to this fictitious capital. The Banks could not recover the debt as the value of property had shrunk. Money is substitute to Capital (Tobin effect). Money, according to Stockman, is complimentary to Capital.

India's flip flop scientific Temper

Ancient India produced a lot of good science. Theorems attributed to Pythagoras are described in Indian texts that predate the Greeks. Foreign subjugation for around 1,000 years has discredited India’s ancient texts including the Vedas which contained many stanzas which were really ‘more advanced than the modern Science’. Since these texts were written in Sanskrit, and the statements were concise that it was difficult to expand the verses. Even as Indian economy continues to grow at a fast clip, several other statistics indicate that there are many challenges that will need to be taken in stride if the growth is to be sustained. Of them, arguably, one of the biggest challenges is the fact that India has the world’s largest number of uneducated children. These children can be India’s scientists, astronauts, doctors, engineers, economists, journalists and even politicians. Our educational system continues to be lacking in spirit. We lack continuity. The amount government earmarks for higher education, Research, etc is inadequate. All that the Government Research bodies do is present papers at international fora. None of their models have been tested on the ground for successful results. None of their suggested outcomes have come true. There are fundamental flaws in our approach to Research and Development. Statistical data released by these experts are found to be fallacious resulting in our continuing with the same Policy though it required a change. Wrong predictions result in wrong diagnosis which again fails the Policy, however, well intended it may be. Scientists are at a superficial level, equipped with knowledge but not in terms of feeling. The depth in scientific temper is found wanting. India does not attach importance in nanotechnology, information technology, biotechnology, space technology, cosmology, astrophysics and astronomy, etc. It is a sad fact that we have allowed our universities to degenerate. Most of the money goes to special centres, which have high connections. Research centres like agricultural research, economic research, product development, packaging and design technology which are the monopoly of the highly influential get government grants running into tens and thousand crores of Rupees. But the outcome is not visible as we see studded growth everywhere. If you want to excite young students to do research they should see research being done in an environment where they are studying. Only a handful is doing research in universities. In Institutes where there is reasonable amount of research being done, they are very few students. If the research institutes were on university campuses, then things might have been different. We should try to link university students and teachers with research institutes more closely and intimately. Indian universities lack scientific temperament. Experimenting is not their forte. Scientists get a spiritual high from science; they feel connected to the universe; and intellectual challenge is often their goal.

India needs to edit its Economic philosophy & thought

India is dithering. India’s dream growth is a saga of the Past. We are the fastest emerging economy of the World is a myth rather than a reality. Most of the people who follow the economic situation in the Country are very well aware that the Government, due to alarming expenditure and reduced income, may have to resort to borrowing which will result in fiscal deficit going up. This has been voiced by Shri C Rangarajan, PM’s Economic advisor.

The over-burdened interest rates which have halted manufacturing activity because of high borrowing; its costs both in the government and private sector will go up, banks which are dealing bond portfolios will suffer because of higher yields, and banks will be constrained to release more liquidity into the system which will stoke inflation. Government's disinvestment programme (Rs 40,000 Cr) is blank. Small savings against estimated Rs 24,000 Cr sees dip by Rs 35,000 Cr, and the diff in borrowing estimated at Rs 1.67 lakhs in the budget will go up to Rs 2.2 lakh.

In order to placate the Corporate lobby, government has eased the External Commercial Borrowing limits and enhanced it to US $ 30 billion against $ 20 billion, while in the first 6 months, Corporates borrowed $ 20 billion which was pushed into the Indian liquidity for dealing in Rupee transactions. During March 2011 to May 2011, the Government withdrew US $ 4.2 billion which reduced India's exposure in US Treasury bonds to $ 37.8 billion (from $ 41 billion). Where did it go?

The fiscal deficit is predicted to be 5.5% by experts, but a conservative estimate puts it at 7-7.2%. In the first five months’ of the current fiscal, the fiscal deficit has overshot by 66.3% making it vulnerable to cross the budgeted 4.2%. Software industry, whose dependence on the American market is formidable, is in a shock. The promoters of India’s top software company have retired or resigned to move to greener pastures. Why? Only book orders continue to be executed with no firm new orders being registered. The same thing is expected of new economy sectors. The export blitz reported was US $ 252 billion in 2010-11 and the Commerce Ministry is hopeful of touching $ 450 billion by 2013-14 given the grim conditions of world order. The Foreign Exchange Reserves and External debt in Q1 showed 100:79.6 with external debt at 317 billion and FER being $ 312.707 as on Sept 23, 2011. Short term debt, external commercial borrowing and surge in import could expand the short fall unwieldy.

There was a North-South divide. As trade flows in the developing countries have emerged to grow at a faster pace, south- south trade equations have undergone vast changes in the external and domestic landscape. According to a transcript, the Indian domestic market has been vastly under the grip of China, as its bi-lateral trade as well as through dumping it has increased its presence considerably in the Indian peninsula. China and India are likely to be economic movers, it has been claimed, but instead it seems BRCC (Brazil, Russia, China and China) instead of the oft-quoted BRIC (Brazil, Russia, India and China). Domestic market is heavily dependent on unscrupulous imports (including in food) and Indian domestic market seems to be driven and covered well by the Chinese Dragon while India’s nimble elephant slowly limbs.

Has India’s dream growth ended as predicted by noted economist Shri Jha in his column in some newspapers? Question becomes strident as economy is sliding towards its worst curve. Awkward BoP position would deface the effaced growth which from double digits is slipping to 7.5%. The Path drivers and Path finders are at the cross roads leading them to no highway except to the alleys. Long term vision has become bleak while long term drive seems to be unexpectedly slow and off the mark.

Reserve Bank of India and the Planning Commission has no clue to rid headline inflation which is about to cross double-digits. Food inflation is on the threshold of double digits. Manufacturing output is very low, as Credit has become costly, inputs unavailable with idle capacity hovering around 55%. Government and the Economic divisions which drive Indian economy seem to be insensitive to people’s problems. Otherwise planning commission would not fix Rs 32/day as bench-mark to determine Poverty. The Opposition parties seem to be more political and instead should concentrate on evolution of an economic alternative that will fix the screws of the Indian economy instead of politicking 100% of their time. The ruling party has become a theorizing party, with the Great past as its halo, instead of cleaning up the mess in the present and planning for the future. The Opposition seems no better. Economic Boom, Zoom and Doom can trigger a Great Depression from which India might not be able to come out and leverage as the other developing countries can strike us hard with our poor population growing menacingly without any contraction. We have to sort out the rudimentary, basic, structural economic issues more prudently. We need to set a target for growth and we need to achieve them. After spending Crores of Rupees, if we devise explanations to justify the shortfalls and pitfalls, India just cannot afford such a situation.

India had deep rooted scientific past and sensible economic theories which had made it a most sought out country, going by its trade and economic past. Space-time continuum was enunciated by Albert Einstein in 1905 while some sacred religious texts in Sanskrit talked about the same theory two hundred years’ ago! We have enough literature on modern Economics given to us by the great sages of India which can be followed instead of abstract copying of Western theories of Economies.